UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _________________ to _________________
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
| Registrant’s telephone number, including area code |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at May 19, 2025 | |
| Common Stock, $ par value per share |
NOVELSTEM INTERNATIONAL CORP.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 2025
TABLE OF CONTENTS
| 2 |
PART I
| ITEM 1. | UNAUDITED CONDENSED FINANCIAL STATEMENTS |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED BALANCE SHEETS
| As of | ||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ |
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$ |
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||||
| Accounts receivable, administrative fees |
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|||||||
| Prepaid expenses |
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| Total current assets |
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||||||
| Investment in NetCo |
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| Investment in NewStem, net | ||||||||
| Total assets | $ |
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$ |
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||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ |
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$ |
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| Accrued expenses |
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||||||
| Notes payable, including accrued interest |
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| Current portion of long-term notes payable, including accrued interest |
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| Bridge loan payable, related party, including accrued interest |
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| Convertible debt, including accrued interest |
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| Derivative liability, guarantee |
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| Total liabilities |
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| Commitments and contingencies (see Note 7) | ||||||||
| Shareholders’ deficit: | ||||||||
| Common stock, $ par value, shares authorized, shares issued at March 31, 2025 and December 31, 2024 and shares outstanding at March 31, 2025 and December 31, 2024 |
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||||||
| Additional paid-in capital |
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||||||
| Accumulated deficit |
(
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) |
(
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) | ||||
| Treasury stock, at cost, shares at March 31, 2025 and December 31, 2024 |
(
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) |
(
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) | ||||
| Total shareholders’ deficit |
(
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) |
(
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) | ||||
| Total liabilities and shareholders’ deficit | $ |
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$ |
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||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Administrative fee income | $ | $ |
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| Operating expenses: | ||||||||
| General and administrative expenses |
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| Total operating expenses |
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| Loss from operations |
(
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) |
(
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) | ||||
| Other expenses: | ||||||||
| Gain on derivative instrument |
(
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) | ||||||
| Interest expense |
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| Total other expenses |
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||||||
| Loss before income taxes |
(
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) |
(
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) | ||||
| Provision for income tax | ||||||||
| Loss before equity in net loss of equity method investees |
(
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) |
(
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) | ||||
| Equity in net loss of equity method investees |
(
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) | ||||||
| Net loss | $ |
(
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) | $ |
(
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) | ||
| Basic and diluted net loss per share: | ||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(UNAUDITED)
For the Three Months Ended March 31, 2025:
| Additional | Number of | Total | ||||||||||||||||||||||||||
| Number of | Common | Paid-In | Accumulated | Treasury | Treasury | Shareholders’ | ||||||||||||||||||||||
| Shares | Stock | Capital | Deficit | Shares | Stock | Deficit | ||||||||||||||||||||||
| Balance, January 1, 2025 |
|
$ |
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$ |
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$ |
(
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) |
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$ |
(
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) | $ |
(
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) | |||||||||||||
| Net loss | - |
(
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) | - |
(
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) | ||||||||||||||||||||||
| Stock-based compensation | - |
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- |
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||||||||||||||||||||||||
| Balance, March 31, 2025 |
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$ |
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$ |
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$ |
(
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) |
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$ |
(
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) | $ |
(
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) | |||||||||||||
For the Three Months Ended March 31, 2024:
| Additional | Number of | Total | ||||||||||||||||||||||||||
| Number of | Common | Paid-In | Accumulated | Treasury | Treasury | Shareholders’ | ||||||||||||||||||||||
| Shares | Stock | Capital | Deficit | Shares | Stock | Deficit | ||||||||||||||||||||||
| Balance, January 1, 2024 |
|
$ |
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$ |
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$ |
(
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) |
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$ |
(
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) | $ |
(
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) | |||||||||||||
| Net loss | - |
(
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) | - |
(
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) | ||||||||||||||||||||||
| Stock-based compensation | - |
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- |
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||||||||||||||||||||||||
| Balance, March 31, 2024 |
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$ |
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$ |
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$ |
(
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) |
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$ |
(
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) | $ |
(
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) | |||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
NOVELSTEM INTERNATIONAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ |
(
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) | $ |
(
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) | ||
| Equity in loss of equity method investees |
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|||||||
| Accretion of discount on note payable |
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| Gain on derivative instrument |
(
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) | ||||||
| Accrued interest added to notes payable and convertible debt |
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| Stock-based compensation |
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| Change in operating assets and liabilities: | ||||||||
| Accounts receivable, administrative fees |
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(
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| Prepaid expenses |
(
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| Accounts payable |
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| Accrued expenses |
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| Net cash used in operating activities |
(
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| Cash flows from investing activities: | ||||||||
| Loans made |
(
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| Net cash used in investing activities |
(
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| Cash flows from financing activities: | ||||||||
| Proceeds from issuances of short-term notes payable | $ |
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$ | |||||
| Proceeds from issuances of long-term notes payable |
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| Net cash provided by financing activities |
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| Net decrease in cash |
(
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(
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| Cash at the beginning of the period |
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| Cash at the end of the period | $ |
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$ |
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| Supplemental cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ |
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$ |
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Supplemental Non-Cash Investing and Financing Activities: |
||||||||
| Interest added to notes payable and convertible debt | $ |
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$ |
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||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
NOVELSTEM INTERNATIONAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1— NATURE OF OPERATIONS
Description of Business
NovelStem International Corp.
(“NovelStem” or the “Company”) is a holding company whose principal assets are an approximate
NewStem focused on the development and commercialization of diagnostic technology that can predict patients’ anti-cancer drug resistance, allowing for targeted cancer treatments and the potential to reduce resistance to chemotherapy.
NetCo is a legacy media business interest which owns “Net Force”, a book publishing franchise.
Going Concern, Liquidity and Management’s Plans
Since inception, the Company has
accumulated a deficit of approximately $
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include additional financing and fundraising as well as monetization of assets held related to equity method investments. Specifically, the Company is in the final stages of the process of selling NetCo to its joint venture partner in a transaction that satisfies the related debt (litigation funding agreement). Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that the Company will realize any value from the intangible assets or technology of NewStem, which is currently in the process of liquidation due to its inability to raise funds for continued operations (see Note 3).
The Company has in place a finance
agreement with two individuals who are shareholders and directors under which it borrowed $
and an additional finance agreement
with a shareholder under which it borrowed $
for working capital needs (see Note 4). Additionally, the Company entered into additional
finance agreements with unrelated parties in December 2023 and April 2024 under which it borrowed an additional $
for working capital
needs and to fund NewStem (see Note 4). All funds available pursuant to these agreements have been received. During the three months ended
March 31, 2025, a shareholder and director advanced $
On May 9, 2025 the Company entered into a Settlement Agreement and Release whereby the investment in NetCo was monetized to settle the litigation funding liability to OmniBridgeway in full. See Note 8.
In view of the matters described above, the Company’s ability to meet financing requirements is dependent upon the ability to complete additional fundraising or obtain additional financing, and/or monetize the intangible assets of NewStem. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.
The accompanying unaudited condensed financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on April 7, 2025, from which the Company derived the balance sheet data at December 31, 2024.
| 7 |
Certain information and footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Company’s Form 10K filed with the Securities and Exchange Commission on April 7, 2025 for the years ended December 31, 2024 and 2023.
Equity Investments
Investee companies that are not
consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether
or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors, including,
among others, representation on the
The Company reviews equity investments for impairment on an annual basis, or earlier if events or changes in circumstances indicate that the carrying amounts might not be recoverable.
The Company holds a minority investment
in an entity, NewStem, which is accounted for pursuant to the equity method of accounting. Additionally, until May 9, 2025 the Company
was a
Reclassifications
Accrued interest of $
Derivative Financial Instruments
The Company has in place a financial
instrument, in the form of a note payable, with an identified embedded derivative in the form of a guarantee. The identified embedded
derivative has been bifurcated and accounted for separately. Such derivative financial instruments are measured at fair value at each
financial statement reporting date. If the fair value of a financial liability (the derivative) exceeds the proceeds received for the
issuance of a hybrid instrument in an arm’s length transaction with no rights or privileges that require separate accounting recognition
as an asset identified, then the embedded derivative is recorded at fair value with the excess of fair value over proceeds recognized
as a loss in earnings. During the three months ended March 31, 2024, the Company recognized a gain on derivative financial instruments
of $
Basic net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period, excluding treasury stock. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding plus the dilutive potential of common shares which would result from the exercise of stock options and warrants. The dilutive effects of stock options and warrants are excluded from the computation of diluted net income (loss) per share if the effect of doing so would be antidilutive.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss attributable to common shareholders | $ |
(
|
) | $ |
(
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) | ||
| Weighted average shares outstanding: | ||||||||
| -Basic |
|
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||||||
| Add: Warrants | ||||||||
| Add: Stock options | ||||||||
| -Diluted |
|
|
||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ) | |||
| 8 |
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Warrants |
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| Stock options |
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NOTE 3— EQUITY METHOD INVESTMENTS
Investment in NewStem
In 2018, the Company entered into
a Share Purchase Agreement with NewStem and other related parties to provide aggregate funding of up to $
The Company accounts for its investment
in NewStem under the equity method. At December 31, 2024, the carrying value of the investment in NewStem exceeded its portion of the
underlying net assets of NewStem by approximately $
NewStem is a development stage company and has incurred losses since its inception and has generated only minimal revenues under a licensing agreement.
The Company assesses its investment
in NewStem for impairment on an annual basis or more frequently if indicators of impairment exist. During the year ended December 31,
2024, indicators of impairment became evident due to the inability of NewStem to raise funds. Due to the inability to raise funds, NewStem
has been unable to continue operations and is in the process of liquidation. The intangible assets of NewStem, including license agreements,
have reverted to the licensor, Yissum (the commercial division of Hebrew University). The Company has reached an agreement with Yissum
regarding the potential monetization of these intangible assets which provides for funds to be received by the Company in the event of
re-licensing or monetizing the licenses or related technology developed by NewStem. Due to the current uncertainty of the recovery of
any value from these intangible assets and the liquidation status of NewStem, the Company has fully impaired the investment in NewStem
and reduced the carrying value to zero ($
The Company signed an agreement
(the “Purchase Agreement”) to acquire the remainder of NewStem in exchange for shares of Company stock as well as funding
for NewStem operations. In anticipation of this transaction, the Company advanced $
During the three months ended
March 31, 2024, the Company recorded a reimbursement due to NewStem of approximately $
The following table represents the Company’s investment in NewStem:
| Three Months Ended March 31, 2025 | Year Ended December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Investment in NewStem, beginning | $ | $ |
|
|||||
| Allocation of net loss from NewStem, Ltd. |
(
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) | ||||||
| Investment in NewStem before impairment |
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|||||||
| Impairment loss recorded |
(
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) | ||||||
| Investment in NewStem, ending | $ | $ | ||||||
| 9 |
The results of operations of the Company’s investment in NewStem is summarized below (unaudited):
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Condensed income statement information: | ||||||||
| Net revenues | $ | $ | ||||||
| Gross margin | $ | $ | ||||||
| Net loss | $ | $ |
(
|
) | ||||
| Company’s allocation of net loss from NewStem, Ltd. | $ | $ |
(
|
) | ||||
The financial position of the Company’s investment in NewStem is summarized below:
| As of | ||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Condensed balance sheet information: | ||||||||
| Current assets | $ | $ |
|
|||||
| Non-current assets | $ | $ |
|
|||||
| Current liabilities | $ | $ |
|
|||||
| Non-current liabilities | $ | $ | ||||||
Investment in NetCo
As of March 31, 2025 and December
31, 2024, NovelStem owned a
The following table represents the Company’s investment in NetCo:
|
Three Months Ended March 31, 2025 |
Year Ended December 31, 2024 |
|||||||
| (Unaudited) | ||||||||
| Investment in NetCo, beginning | $ |
|
$ |
|
||||
| Allocation of net income (loss) from NetCo |
(
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) | ||||||
| Distribution from NetCo | ||||||||
| Investment in NetCo, ending | $ |
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$ |
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||||
The results of operations of the Company’s investment in NetCo is summarized below (unaudited):
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Condensed income statement information: | ||||||||
| Net sales | $ | $ |
|
|||||
| Gross margin | $ |
(
|
) | $ |
|
|||
| Net income | $ |
(
|
) | $ |
(
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) | ||
| Company’s allocation of net income from NetCo | $ |
(
|
) | $ |
(
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) | ||
The
Company did not record the allocated loss of $
The financial position of the Company’s investment in NetCo is summarized below:
| As of | ||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Condensed balance sheet information: | ||||||||
| Current assets | $ |
|
$ |
|
||||
| Non-current assets | $ |
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$ |
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||||
| Current liabilities | $ |
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$ |
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| Non-current liabilities | $ | $ | ||||||
On May 9, 2025, the Company entered
into a Settlement Agreement and Release whereby the investment in NetCo was sold to the Company’s JV partner for $
| 10 |
NOTE 4— NOTES PAYABLE
In December 2023, the Company
entered into two short-term notes payable with unrelated parties, Hewlett Fund and AIGH Investment Partners, LLC. The notes are for $
Long-term notes payable are summarized as follows:
| As of | ||||||||
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Notes payable related parties: | ||||||||
| Notes payable director and Executive Chairman | $ |
|
$ |
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||||
| Accrued interest added to note balance |
|
|
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| Total notes payable director and Executive Chairman |
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| Note payable shareholder, principal amount |
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|
||||||
| Less unamortized discount |
(
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) |
(
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) | ||||
| Total note payable shareholder |
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| Note payable, litigation funding agreement: | ||||||||
| Note payable Omni Bridgeway (Fund 4) Invt. 3 L.P. |
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| Accrued interest added to agreement balance |
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| Total note payable, litigation funding agreement |
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| Total notes payable |
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| Less current portion |
(
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) |
(
|
) | ||||
| Long-term notes payable | $ | $ | ||||||
In May 2022, the Company entered
into note agreements with Jan Loeb, our Executive Chairman and Jerry Wolasky, a shareholder and member of the Board, to borrow up to an
aggregate of $
On May 5, 2023, the Company entered into a long-term note payable with a shareholder for $ in financing to be funded $ at inception and $ in October 2023. This note bears interest at zero percent ( %) and matured on . The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $ at March 31, 2025 and December 31, 2024 which is reported separately on the balance sheet. The fair value of the note exceeds the proceeds, and the note has been discounted at inception so that the net liability is the fair value of the derivative. Accretion of the note discount of $ and $ , respectively, has been reflected as part of interest expense in the statement of operations for three months ended March 31, 2025 and 2024. This note agreement was amended in May 2025 to provide for a fixed amount of interest in lieu of the guarantee. See Note 8.
Note Payable, Litigation Funding Agreement
On February 11, 2022, the Company
entered into a nonrecourse litigation funding agreement (the “Agreement”) with Omni Bridgeway (Fund 4) Invt. 3 L.P. (“Omni”)
related to an arbitration proceeding disclosed in Note 7. The Agreement provides for Omni to fund all costs related to the arbitration
up to $
| 11 |
During July 2023, the
arbitration was settled. As a result of the ruling disclosed in Note 7, the liability became probable and reasonably estimable, and
the Company recorded the full liability due to Omni as of December 31, 2023. This liability consists of expenses funded by Omni of
$
The Company began
negotiations for settlement during 2024 and on May 9, 2025, the Company entered into a Settlement Agreement and Release with our JV
partner in NetCo, C.P. Group, and Omni whereby our interest in NetCo was sold in exchange for funds of $
Bridge Loan
During the three months ended
March 31, 2025, Jan Loeb, Executive Chairman, began advancing funds to the Company for operating expenses in the form of an interim bridge
loan until alternate funding sources can be found. The Company is accruing interest at
Convertible Debt
In April 2024, the Company borrowed $ from unrelated parties pursuant to convertible debt agreements accounted for as debt. These agreements bear interest at % per annum and mature . The unpaid principal balance of these notes and any accrued interest may be converted into shares of the Company’s common stock at a conversion price of $ per share. Interest accrued related to these agreements was $ during the three months ended March 31, 2025.
NOTE 5— EQUITY
(a) General
At March 31, 2025 and December 31, 2024, the Company had issued shares and outstanding shares of its common stock, par value $ per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company.
(b) Summary Employee Option Information
The Company’s stock option plan provides for the grant to officers, directors, third party contractors and other future key employees of options to purchase shares of common stock. The purchase price may be paid in cash or, if the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock. Most options expire within six years from the date of the grant and generally vest on the first anniversary date of their issuance. Pursuant to the Equity Incentive Plan the Company’s board of directors approved on November 12, 2018, an aggregate of options have been issued to directors and investor relations professionals as of March 31, 2025.
| Risk-free interest rate |
|
% | ||
| Expected term of options, in years | ||||
| Expected annual volatility |
|
% | ||
| Expected dividend yield |
|
% | ||
| Determined weighted average grant date fair value per option | $ |
|
options were issued during the three months ended March 31, 2025.
The expected term of the options represents an estimate of the length of time until the expected date of exercising the options. Options granted have a maximum life of years. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected term of the option. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected term. The dividend yield of % is based on the Company’s history and expectation of dividend payout. The Company has not paid and does not anticipate paying dividends in the near future.
| 12 |
(c) Summary Option Information
| Number | Weighted | |||||||
| of | Average | |||||||
| Options | Exercise | |||||||
| (in shares) | Price | |||||||
| Outstanding, December 31, 2024 |
|
$ |
|
|||||
| Granted | ||||||||
| Outstanding, March 31, 2025 |
|
$ |
|
|||||
| Exercisable, March 31, 2025 |
|
$ |
|
|||||
Stock-based compensation expense was approximately $ and $ in the three months ended March 31, 2025 and 2024, respectively.
The total compensation cost related to non-vested awards not yet recognized was approximately $ as of March 31, 2024. As of March 31, 2024, options were unvested. These options vested during March 2025.
(d) Warrants
| Number of | Weighted | |||||||
| shares | Average | |||||||
| underlying | Exercise | |||||||
| warrants | Price | |||||||
| Outstanding, December 31, 2024 |
|
$ |
|
|||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited or expired | ||||||||
| Outstanding, March 31, 2025 |
|
$ |
|
|||||
The warrant agreements were amended
on May 12, 2023 to extend the expiration date to
| 13 |
NOTE 6— INCOME TAXES
The Company’s income tax provision differs from the expense that would result from applying statutory rates to income (loss) before taxes. A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows (unaudited):
| Three Months Ended March 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Amount | Tax Rate | Amount | Tax Rate | |||||||||||||
|
Computed tax at the federal statutory rate of
|
$ |
(
|
) |
|
% | $ |
(
|
) |
|
% | ||||||
| State income taxes, net of federal income tax benefit |
(
|
) |
|
% |
(
|
) |
|
% | ||||||||
| Change in federal valuation allowance |
|
(
|
)% |
|
(
|
)% | ||||||||||
| Foreign rate differential |
|
% |
(
|
) |
|
% | ||||||||||
| Total provision for income tax | $ |
|
% | $ |
|
% | ||||||||||
NOTE 7— COMMITMENTS AND CONTINGENCIES
The Company was the claimant in
an arbitration proceeding against their
The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force).
As a result of this ruling, the
costs related to the litigation funding agreement disclosed in Note 4 were recognized and a total liability of $
NOTE 8— SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date these financial statements were available to be issued and filed with the SEC.
In April and May 2025, the Company
borrowed additional funds totaling $
On May 9, 2025, the Company
entered into a Settlement Agreement and Release whereby our JV partner in NetCo, CP Group, purchased our interest in NetCo for $
On May 17, 2025, the
Company amended the note agreement with a shareholder, removing the guarantee which constituted an identified derivative liability
with a fair value of $
| 14 |
NOVELSTEM INTERNATIONAL CORP.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statements in the following discussion and throughout this Form 10-Q that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this Form 10-Q because of numerous factors, many of which are beyond our control. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes.
Overview
We are a development stage company and reported net losses of approximately $207,000 and $303,000 for the three months ended March 31, 2025 and 2024, respectively. We had current assets of approximately $22,000 and current liabilities of $5,493,000 as of March 31, 2025. As of December 31, 2024, our current assets and current liabilities were approximately $32,000 and $5,304,000, respectively. The increase in current liabilities is primarily due to interest accrued on debt and advances on short-term borrowings to fund operating expenses.
We have prepared our financial statements for the three months ended March 31, 2025 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon NewStem’s ability to successfully develop and commercialize its products, improving our profitability and the continuing financial support from our shareholders as well as obtaining additional outside funding. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions, large alternative minimum tax refunds, and related party debt as well as debt from unrelated parties.
NewStem is a development stage Israeli biotech limited liability company focused on pioneering intellectual property related to haploid human embryonic stem cells for the development of personalized diagnostics and therapeutics for genetic and epigenetic diseases. NewStem has incurred losses related to in process research and development since inception and the Company records our percentage allocation of these net losses as incurred. NewStem is in the process of liquidation, and we have recorded a full impairment loss on our investment in NewStem.
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-Q. In the discussion below, general and administrative expenses are referred to as “G&A expenses”.
| Three Months Ended March 31, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| Administrative fee income | $ | - | $ | 3,000 | $ | (3,000 | ) | |||||
| Operating expenses: | ||||||||||||
| G&A expenses | 94,574 | 183,306 | (88,732 | ) | ||||||||
| Total operating expenses | 94,574 | 183,306 | (88,732 | ) | ||||||||
| Loss from operations | (94,574 | ) | (180,306 | ) | 85,732 | |||||||
| Other expenses: | ||||||||||||
| Gain on derivative instrument | - | (25,000 | ) | 25,000 | ||||||||
| Interest expense | 112,642 | 94,764 | 17,878 | |||||||||
| Total other expenses | 112,642 | 69,764 | 42,878 | |||||||||
| Net loss before equity in net loss of equity method investees | (207,216 | ) | (250,070 | ) | 42,854 | |||||||
| Equity in net loss of equity method investees | - | (53,210 | ) | 53,210 | ||||||||
| Net loss | $ | (207,216 | ) | $ | (303,280 | ) | $ | 96,064 | ||||
We are a holding company whose primary assets are our ownership of equity interests in NetCo and NewStem including the technology of NewStem. We conduct no other business and as a result, we have no operating revenue or cost of revenue. We did charge annual administrative fees to an affiliated entity through the year ended December 31, 2024.
The Company incurs G&A expenses primarily related to professional fees, insurance and stock based compensation. We incurred G&A expenses of approximately $95,000 and $183,000 for the three months ended March 31, 2025 and 2024, respectively. Specifically, professional fees decreased by approximately $86,000 in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to a decrease in audit fees due to timing of fees incurred. We incurred a bad debt expense during the three months ended March 31, 2025 of approximately $9,500 for the write off of uncollectible administrative fees. We had reductions in insurance expense and stock compensation of approximately $7,000 and $4,800, respectively. Other miscellaneous G&A expenses decreased by approximately $700.
| 15 |
Interest expense increased by approximately $18,000 in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 as a function of higher debt outstanding during the current period.
The Company has recorded no income tax expense as we have incurred operating losses and all deferred tax assets are fully offset by an income tax valuation allowance.
We reported net losses from equity method investees during the three months ended March 31, 2024 which included a loss from NetCo of $1,351 and a loss from NewStem of $51,859. No net losses were reported for the three months ended March 31, 2025 because NetCo had minimal immaterial activity and was in the process of being sold and NewStem was liquidated and not incurring additional losses and we had previously fully impaired the investment.
Liquidity and Capital Resources
We have not paid dividends on our common stock since our name change and business focus shift in 2018. Our present policy is to apply cash to investments in product development at NewStem, acquisitions or expansion; consequently, we do not expect to pay dividends on common stock in the foreseeable future.
The Company will need to obtain additional funds to continue its operations. Management’s plans with regard to these matters include the sale of our interest in NetCo to settle our liability related to the litigation funding agreement and additional financing and fundraising until our interest in NewStem’s technology is profitable. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient cash from financing on terms acceptable to the Company, or that NewStem’s technology will be monetized and become profitable.
In May 2022, the Company entered into note agreements with Jan Loeb, our Executive Chairman and Jerry Wolasky, a member of the Board, to borrow up to an aggregate of $600,000 for working capital needs. The note agreements were amended in March 2024 to increase the total borrowing to $650,000 and extend the maturity date. The agreements provide for interest at a rate of 10% per annum and mature September 1, 2025. As of the date of this Quarterly Report, the full amount of $650,000 has been funded pursuant to these agreements.
During the year ended December 31, 2023, the Company entered into a note agreement with a shareholder to borrow $300,000 for continued working capital. This note bears interest at zero percent (0%) and matured on May 5, 2025. The note includes a guarantee which has been identified as an embedded derivative with a fair value of a liability of $650,000 at March 31, 2025 and December 31, 2024.
During the three months ended March 31, 2025, the Company borrowed $41,000 from the executive chairman in the form of an interim bridge loan until alternate funding sources can be found. The Company is accruing interest at 10% per annum for these advances.
| 16 |
In December 2023, the Company entered into two short-term notes payable with unrelated parties for a total of $250,000 in borrowings utilized for the funding of NewStem. The notes bear interest at 12% per annum and mature December 21, 2025, at which time all principal and accrued interest are due and payable. The note agreements include a provision whereby, in the event of a capital raise transaction by the Company, the note holders would be entitled to participate in the transaction in an amount equal to 133% of the amounts owed on the note agreements at the closing of the transaction.
In April 2024, the Company borrowed $100,000 from unrelated parties pursuant to convertible debt agreements accounted for as debt.
Net Cash Used In Operating Activities.
For the three months ended March 31, 2025, net cash used in operating activities was approximately $44,000, which consisted primarily of a net loss of approximately $207,000, offset by accretion of discount on notes payable of approximately $43,000, stock based compensation of approximately $9,000 and interest added to notes payable of approximately $68,000. Additionally, cash was used in operations related to an increase in current assets of approximately $8,000 and a net increase in total accrued liabilities and accounts payables of approximately $35,000.
For the three months ended March 31, 2024, net cash used in operating activities was approximately $73,000, which consisted primarily of a net loss of approximately $303,000, offset by noncash equity in loss of equity method investees of approximately $53,000, accretion of discount on notes payable of approximately $44,000, stock based compensation of approximately $14,000 and interest added to notes payable of approximately $42,000 and reduced by gain on derivative instrument of $25,000. Additionally, cash was used in operations related to an increase in current assets of approximately $3,000 and an decrease in accrued liabilities and other payables of approximately $95,000.
Net Cash Used In Investing Activities.
During the three months ended March 31, 2024, $250,000 was loaned to NewStem in an investing activity. For the three months ended March 31, 2025, no net cash was used in investing activities.
Net Cash Provided By Financing Activities.
For the three months ended March 31, 2025, net cash provided by financing activities was $41,000, consisting of short-term borrowings from the executive chairman.
For the three months ended March 31, 2024, net cash provided by financing activities was $275,000, consisting of long-term borrowings from two directors and a significant stockholder totaling $275,000.
| 17 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
This section is not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Our Principal Executive Officer and Chief Financial Officer conducted an evaluation of our controls and procedures. We have identified material weaknesses in our internal control and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.
Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have re-evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of March 31, 2025 and we concluded there was a material weakness in the design of our internal control over financial reporting as it relates to insufficient resources to employ proper segregation of duties over the processing of transactions and financial reporting.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
| ITEM 1. | LEGAL PROCEEDINGS |
As noted above, NetCo owns all rights to the “Tom Clancy’s Net Force” intellectual property in all media, including film, television, and video games. As part of the joint venture, NetCo has published more than a dozen books and had an ABC miniseries.
After Tom Clancy passed away in 2013, his estate and business partners refused to cooperate in exploiting the intellectual property. After trying to amicably resolve the dispute, the Company initiated arbitration proceedings with the American Arbitration Association. The Company’s arbitration demand asserted claims for breach of the joint venture agreement and breach of fiduciary duty. Both claims arise from C.P. Group’s failure to make reasonable, good faith efforts to exploit the full array of media rights relating to Net Force. The Company’s goal is to maximize the total potential value of the NetCo intellectual property across video games, streaming, digital media, merchandising and other ancillary markets. The Company believes that the value of the intellectual property is significant.
| 18 |
The arbitration evidentiary hearing concluded on October 20, 2022, and the arbitrator ordered the parties to submit post-hearing briefs. Final briefs were filed in January 2023. The Arbitrator ruled in the Company’s favor on two key issues of the arbitration and ruled against the Company in other key issues.
The Arbitrator ruled in NovelStem’s favor on the issue of contract interpretation of the Netco Partners JV Agreement. The Arbitrator also found that the Company’s joint venture partner failed to use “reasonable, good faith efforts” to license and exploit the Net Force concept, in breach of its contractual obligations under the Netco Partners’ Joint Venture Agreement. The Arbitrator confirmed NovelStem’s contractual right to use Tom Clancy’s name as a possessory credit in the Net Force title (Tom Clancy’s Net Force). However, the arbitrator did not award any damages to the Company and did not cede operating control of the joint venture to the Company as requested. As such, the Company continues to struggle to maximize the potential of the NetCo asset.
To fund efforts to maximize the value of NetCo, NovelStem has secured non-recourse litigation funding. As a result of this ruling, the costs related to the litigation funding agreement were recognized. All costs related to the litigation and the related litigation funding agreement were recorded by the Company for a total liability of approximately $2,900,000. This liability which totaled approximately $3,000,000, including accrued interest, was settled in full on May 9, 2025.
| ITEM 1A. | RISK FACTORS |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| (a) | Not applicable. | |
| (b) | Not applicable. | |
| (c) | Not applicable. |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
| # | This exhibit is filed or furnished herewith. |
| 19 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| NOVELSTEM INTERNATIONAL CORP. | ||
| Date: May 19, 2025 | By: | /s/ Jan Loeb |
| Name: | Jan Loeb | |
| Title: | Executive Chairman | |
| 20 |